Project Portfolio Management_Theory Hits Road

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PROJECT PORTFOLIO MANAGEMENT:WHERE THEORY HITS THE ROAD

v2006.1

Prepared and presented by:Keith Farndale, PEng, PMP

Procept Associates Ltd125 - 1234 Kingston RoadToronto, Ontario M1N 1P3

416-693-5559

[email protected]


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ProjectPortfolioManagement:

WhereTheoryHitstheRoad

PresentedbyKeithFarndalev2006.1

9

Outline

Introduction

ProjectPortfolioManagementprocesses

Stakeholdersandroles

Wrap-Up

Project Portfolio Management: Where Theory Hits the Road

v2006.1 Procept Associates Ltd, 2006 3


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10

LearningObjectives

Youwillbeableto

Outlinetheframework of ProjectPortfolio

Management(PPM),asdefinedbyPMI

DiscusstheapplicationofPPMbyorganizations,

fromavailableappliedresearch

Returntoyourorganizationableandwillingto

influenceyourorganizationsPPMpractices

Introduction


4 v2006.1 Procept Associates Ltd, 2006


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13

Definitions

Portfolio:Acollectionofprojectsorprogramsand

otherworkthataregroupedtogethertofacilitate

effectivemanagementofthatworktomeet

strategicbusinessobjectives

ProjectPortfolioManagement:Thecentralized

managementofoneormoreportfolios,which

includesidentifying,prioritizing,authorizing,

managingandcontrollingprojects,programs,and

otherrelatedwork,toachievespecificstrategic

businessobjectivesTheStandardforPortfolioManagementglossary

14

Definitions

Program:Agroupofrelatedprojectsmanagedin

acoordinatedwaytoobtainbenefitsandcontrol

notavailablefrommanagingthemindividually.

Programsmayincludeelementsofrelatedwork

outsideofthescopeofthediscreteprojects.

ProgramManagement:Thecentralized

coordinatedmanagementofaprogramtoachievetheprogramsstrategicobjectivesandbenefits

TheStandardforPortfolioManagementglossary




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15

PORTFOLIO

PORTFOLIOS

Portfolio,Programs,Projects

PROJECTS

PRO-

GRAMS

PORTFOLIOSPORTFOLIOS

16

ProjectPortfolioManagement

Doingprojectsrightisprojectmanagement

Doingtherightprojectsisprojectportfolio

management




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17

TheOrganizationalContext

The Standard for Portfolio Management, Fig 1.2, contributed by Claude Emond, R Thibaud, H Bouchard

18

WhyUsePPM?

1.Maximizethevalueoftheportfolioforagiven

resourceexpenditure

e.g.NPV,ECV,scoringmodels,etc

2.Balancethemixofprojects

e.g.bysize,durationrisk,markets,etc

e.g bubblediagrams,othercharts

PortfolioManagement FundamentaltoNewProductSuccess,workingpaper12,Cooper,Edgett,&Kleinschmidt,ProductDevelopmentInstitute,2001




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19

WhyUsePPM?

3.Strategicallyaligntheportfolio

Reflectsthebusinesssstrategy

Bottom-uportop-down

4.Rightnumberofprojects

Forresourcesavailable

Avoidpipelinegridlock


20

WhyisitDifficult?

Dealswiththefuture oftheproject uncertainties

Thedecisionenvironmentisdynamic

Projectsareatdifferentstagesofcompletion

Resourcesarelimited





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21

PortfolioManagement:History

Financialportfoliomanagementinitiatedin1952

ProjectPortfolioMgtwasfirstaddressedin1959

Newproductdevelopmentledthewayinto

modernprojectportfoliomanagement

Themostprominenttheorist/practitionerisDr

RobertCooper,McMasterUniversity(Wellquote

himfrequently)

OPM3 includedamodelofPPM,2003

TheStandardforPortfolioManagement,2006

22

PortfolioManagementinFinance

ArticleonPortfolioSelectionbyMarkowitz,1952

PartofhisCapitalAssetPricingModel

Theartandscienceofmakingdecisionsabout

investmentmixandpolicy,matchinginvestments

toobjectives,assetallocation,andbalancingrisk

vs.performance.

Adiversifiedportfolioreducesrisk




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23

PortfolioManagementinNewProduct

Development:BubbleDiagram

PortfolioM

anagementFundamentaltoN

ewP

roductSuccess,working

paper12,

Cooper,E

dgett,

&K

leinschmidt,P

roductDevelopmentInstitute,

2001




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PPMProcesses

25

PPMProcessGroups

Al igning Monitoring &

Controlling

1. Identification

2. Categorization

3. Evaluation

4. Selection

5. Prioritization

6. Portfolio Balancing

7. Authorization

8. Portfolio Review

Reporting

9. Strategic Change

TheStandardforPortfolioManagement




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26

1. Identification

Documentingandassembling,forfurtherdecisionmaking,theinventoryofongoingandproposednewcomponentsaspotentialcomponentsforcategorization

Componentmaybeabusinesscase,aproject,aprogramoraportfolio


27

Identification - Inputs

StrategicPlan

Visionstatement

Missionstatement

Long-termgoalsandobjectives,andhowtoachievethem

Existinginventoryofcomponents

Somemaybealreadyauthorizedandunderway

Somearenewsuggestions

WithdescriptorsTheStandardforPortfolioManagement




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Identification Tools Techniques

Documentthecomponentsintotheinventorylist

Filteroutthoseproposedcomponentswhichare

Insufficientlydocumented,or

Donotfittheportfoliobysizeortype


29

Identification - Outputs

Listofcomponents

Descriptorsforeachcomponent

Rejectedcomponents





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2. Categorization

Groupingpotentialcomponentsintocategoriestofacilitatefurtherdecision-making

E.g.bytype-- regulatory,costsavings,riskreduction,orrevenueenhancement


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3. Evaluation

Scoringspecificpotentialcomponentsusingkeyindicatorsandtheirrelatedweightedcriteriaforcomparisonpurposeforfurtherdecision-making

Seeattachedlistofsuggestedcriteria





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POSSIBLE CRITERIA FOREVALUATION2

Business criteria

Strategic Alignment

ProductivityProcess improvementCompetitive advantageBusiness impactEmployee satisfactionCustomer satisfactionIntellectual propertyImpact of not understanding the project

Financial benefits criteria

Revenue growth

Cost savingsCost avoidanceInternal Rate of Return (IRR)Net Present Value (NPV)Return on Investment (ROI)Payback periodCostCash flow generation.

Risk-related criteria

Business risksTechnology risksProject management risksImplementation risksMarket acceptance risksPublic relation risksBrand image risks

2The Standard for Portfolio ManagementAppendix D, 3.2.1.2

Legal/Regulatory compliance criteria

Human Resource related criteriaSpecific competencyEmployee satisfactionResources availabilityHR capacityHR capacity to integrate the solutionImpact on working conditions

Marketing criteria

Market impactProbability of success

Time to marketImpact on existing product linesEstimated product life

Technical criteria

Architectural alignmentInformation deliverySuccess probabilitySystem RAS

ReliabilityAvailabilitySupportability

Conformity to standards




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SampleEvaluationMatrixWith

WeightedScores

Total=WeightxScore

CSR CorporateSocialResponsibility

33

Graphical Example:

Using Sets of Criteria Scores

TheStandardforPortfolioManagementAppendixD3.2.1.3.2

FINA

NCIAL

BENEFIT

RISK

HIGH MED LOW

LOW

HIGH

MEDIUM

GO

STOP

CAUTION




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WORKSHOP: EVALUATION

Professional Concepts Inc, a provider of management training and consulting. As youwould expect from consultants, they have developed vision and mission statements:

Vision:

To be first choice in helping clients thrive in selected business areas, through training,consulting, and building partnerships

Mission:We enhance clients capabilities in selected business areas, be developing and delivering

training supported with consulting.

Professional Concepts has 4 lines of business -- Project Management (PM) training,Business Analysis (BA) training, IT Service Management (ITIL) training, and it has anew business unit in South Africa. Professional Concepts thinks of their current lines ofbusiness, and the business unit as components of a portfolio. Occasionally it will add a

line of business to the portfolio.Question:Please think of some criteria that Professional Concepts can use to evaluatepossible new lines of business.




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4. Selection

Decidingonthecomponentstobeputforwardfromevaluationtoprioritizationbasedontheirevaluationscores

TheStandardforPortfolioManagement,glossary

36

Selection

Consider:

Peoplecapacity

Financialcapacity

Assetcapacity

Somemayberecommendedforrejection

MaybeiterativewithPrioritizationprocess

TheStandardforPortfolioManagementAppendixD3.2.1.4




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5. Prioritization

Rankingtheselectedcomponents(withineachcategory)basedontheirevaluationscoresandothermanagementconsiderations


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Prioritization

SimilartothemethodsinEvaluation,butnowwithawaytoprovideacut-off.




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39

Prioritization

Scoringmodels

Researchindicatestheseworkwell

Pairwise ranking

AnalyticalHierarchyProcess(AHP)

Financialmodels

Oftenstartwithpoorestimatesoffuturecosts&benefits

Ignoresstrategicfit

Thenwecanrecommendasfollows:

Mustdo(mandatory,e.g.regulatory)

Go(fundedactiveprojects)

Hold(goodprojects,butunfunded)

Dead

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Prioritization Using Scoring Models

Scorescanbebasedoncriteriasuchas

Financialreward

Businessstrategyfit

Andstrategicleverage

Probabilityofsuccess

Technicalandcommercial

Eachcriterioncanbeweighted

Seeexampleonpageattached




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A PROJECT SELECTION MODEL3

3From Dye and Pennypacker,Project Portfolio Management, p10.




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Prioritization Example:

Using a Scoring Model

Seenextslide

Youhavescoredeachprojectagainst6criteria,equallyweighted

ProjectAttractivenessScore=averageofthe6scoresx100

Choosetop-rankedprojects,untilyourfull-timeequivalentsarefullybooked

42

Prioritization Example:

Using a Scoring Model

FromPortfolioManagement FundamentaltoNewProductSuccess,workingpaper12,Cooper,Edgett,&Kleinschmidt,ProductDevelopmentInstitute,2001




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Example: Using Pairwise Ranking

Seethenextslide

Ineverycell,comparethetwoprojectsandshowthepreferredone

Addwinnershorizontally,andranktheresults

(Asatest,makesuretheresultsaresymmetricalaboutthediagonal)

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Example: Using Pairwise Ranking

PROJECT

ECHO

PROJECT

CHARLEY

PROJECT

DELTA

PROJECT

BETA

A

B

C

A

B

AA

C

C

C

D

A B

A

A

A

B

C

C

D

PROJECT

ALPHA

PROJECT

ALPHA

PROJECT

BETA

PROJECT

CHARLEY

PROJECT

DELTA

PROJECT

ECHO

4

2

3

1

0

SCORE

1

3

2

4

5

RANK




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Analytic Hierarchy Process (AHP)

Usingpairwise rankingwithmultiplecriteria

Wikipedia says:TheAnalytic Hierarchy Process (AHP)isamathematicaldecisionmakingtechniquethatallowsconsiderationofbothqualitativeandquantitativeaspectsofdecisions.Itreducescomplexdecisionstoaseriesofone-on-onecomparisons,thensynthesizestheresults.Comparedtoothertechniqueslikerankingorratingtechniques,theAHPusesthehumanabilitytocomparesinglepropertiesofalternatives.Itnotonlyhelpsdecision

makerschoosethebestalternative,butalsoprovidesaclearrationaleforthechoice.

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Example: Using a Financial Model

Seenextslide

PV=PresentValueofproductifasuccess

DevCost=DevelopmentCostRemaining

Comm Cost=CommercializationCost

ECV=ExpectedCommercialValue

ECV=Col2xCol3xCol4 Col5 Col6

RankbyECV/DevelopmentCost

Sayyourdevelopmentbudgetis$13

Choosetop-rankedprojects,untilbudgetusedup




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Example Using a Financial Model

AdaptedfromPortfolioManagement FundamentaltoNewProductSuccess,workingpaper12,Cooper,Edgett,&Kleinschmidt,ProductDevelopmentInstitute,2001

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Research Indicates

Researchsuggeststhatscoringmodelsworkwell.

Financialmodelsoftenarebasedonpoor

estimates.Theyareuseful,butaremisleadingly

precise

Seelonglistofmethodsattached




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PROJECT SELECTION AND RESOURCE ALLOCATION METHODS4

1. BENEFITS MEASUREMENT METHODS(Comparing benefits v. costs)Comparative Approaches Benefit Contribution Models

Q-Sort Cost BenefitOrdinal Ranking Risk AnalysisNormative Models Economic Return (NPV, IRR, ROI, EV)Pair-wise Comparisons Marketing ResearchInteractive Group Consumer Panels

Scoring Models Focus GroupsMultiple Criteria Perceptual MapsMultiple Attribute Utility Preference Mapping

Analytical Hierarchy Process

2. STRATEGIC PLANNING METHODS

(How much does it align with organizations strategic goals and objectives)Portfolio Maps (Bubble Diagrams)Cluster AnalysisCognitive Modeling

Regression ModelsDecision Tree DiagrammingDecision Process ModelsExpert Systems

3. OPTIMIZATION METHODS(Mathematical calculation of maximum benefit)Integer ProgrammingLinear ProgrammingNon-Linear Programming

Goal ProgrammingDynamic Programming

4. AD HOC METHODSProfilesInteractive SelectionTop-Down MethodologiesGenius AwardsSystem Approaches

4Some of the methods that have been used over the years. From Dye and Pennypacker,Project PortfolioManagement, p xiii




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Organizingtheprioritizedcomponentsintoacomponentmixthathasthebestpotentialtocollectivelysupportandachievestrategicgoals


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Portfolio Balancing

Allowingusto

Planandallocateresources

Alignprojectswithstrategicdirection

Choosebalanceofriskvs.return,etc

TheStandardforPortfolioManagement3.2.1.6




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Graphical Representations

Especiallybubblediagrams

Represents2variablesontheaxes

Plusa3rd variableinthebubblesize

Andthebubblecolourcanrepresentacategory

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Example:Risk-RewardBubbleDiagram

PortfolioM

anagementFundamentaltoN

ewP

roductSuccess,working

paper12,

Cooper,E

dgett,&K

leinschmidt,P

roductDevelopmentInstitute,

2001




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Other Bubble Diagram Criteria?

Theaxescanbe




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WORKSHOP: PORTFOLIO BALANCING

Professional Concepts Inc, a provider of management training and consulting. As youwould expect from consultants, they have developed vision and mission statements:

Vision:

To be first choice in helping clients thrive in selected business areas, through training,consulting, and building partnerships

Mission:We enhance clients capabilities in selected business areas, be developing and delivering

training supported with consulting.

Professional Concepts has 4 lines of business.

Project Management (PM) training, operating since 1994, is well established in a maturemarketplace, and has no outstanding investment. Annual sales are stable at $800,000.Gross profit is stable at 30% of sales.

Business Analysis (BA) training started in 2005, is established in a growing market andhas few risks associated with it, with a $75,000 investment outstanding. Current annualsales are $250,000, expected to grow to $400,000 in 2008. Gross profit is 48% of sales,but this is expected to grow to 60%.

ITIL training, since 2005, with a net investment of $10,000 outstanding. Sales are low sofar, at $150,000, but this is likely to grow and stabilize at $200,000. Gross profit iscurrently 10% of sales, and this is also expected to grow to 60%.

Its new South African business unit, which started at the beginning of the current year,has a net investment of $100,000, has yet to generate a profit. Current years sales are$140,000, expected to grow to $600,000 by 2008. Gross profit is expected to be 80% of

sales in 2008.Professional Concepts thinks of its current lines of business as components of a portfolio.And it thinks of introducing a new line of business as a project component in theportfolio.

Question:For the existing lines of business, plot them on a bubble diagram. From thedata above, you will have to decide what will be the horizontal axis, the vertical axis, andthe bubble size.

Suggest a new line of business and plot it on the bubble diagram. For the new line ofbusiness and the estimated numbers, use your imagination!




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WORKSHOP: BUBBLE DIAGRAM ANSWER




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Research Indicates

Researchshowsthatorganizationsarepoorat

balancingtheportfolio

Cooper,etal

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7. Authorization

Approving,funding,andcommunicatingthe

authorizationforinitiatingworkonacomponent

includedinthebalancedportfolio





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Authorization

Decisionmadeforacomponent,suchas:

Mustdo(mandatory,e.g.regulatory)

Go(fundedactiveprojects)

Hold(goodprojects,butunfunded)

Dead

Reminder:acomponentmaybea???...

58

Authorization

Andwithauthorizationgoes

Documentandcommunicateperformance

expectations

Rolled-upmilestonesfordeliverablesanddecision

points

Rolledupcostbaselines,cashflowcurves,etc

TheStandardforPortfolioManagement3.2.1.7




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Research Indicates

Researchshowsthatorganizationstendto

proceedwithmoreprojectsthantheyhavethe

resourcestosupport

60

Reminder: PPM Process Groups

Al igningMonitoring &

Controlling

1. Identification

2. Categorization

3. Evaluation

4. Selection

5. Prioritization


7. Authorization

8. Portfolio Review

Reporting

9. Strategic Change





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8. Portfolio Reporting Review

Usingkeyindicatorsandreviewingthe

performanceofthecomponentmixbycomparing

actualwithanticipatedevolution,value,risklevel,

spending,andstrategicalignment


62

Portfolio Reporting Review

Whataresomeperformancemetrics?

TheStandardforPortfolioManagement1.9




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Research Indicates

CompanieswhichpracticePPMarebetteratthe

AligningprocessesthanattheMonitoringand

Controllingprocesses.

ProjectPortfolioManagementMaturity:ABenchmarkofCurrentBusinessPractices.CentreforBusinessPractices

65

PortfolioReportingandReview:

RadarGraph





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9. Strategic Change

Anychangeinthestrategicintentionsandplansof

theorganizationthatcanimpactthecontentsof

componentdefinition,categories,filters,key

indicators,andotherdecision-makingparameters

usedforportfoliomanagement


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StrategicChange:RadarGraph





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StakeholdersandRoles

69

ExecutiveManager

Providesstrategicgoals

PortfolioReviewBoard

Dictatestheframeworkandrulesforportfolio

decisions

Abletojudgealignmentofcomponentwithstrategy Evaluatesportfolioperformance,authorizedto

makedecisions

KeyStakeholders





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KeyStakeholderscontd

PortfolioManager

Managestheportfolio

Competencein...

Understandingstrategy,howbenefitsarerealized,programandprojectmanagement,processdevelopmentandimprovement,generalmanagementskills

Sponsor

Championshisorhercomponents;providesthebusinesscase

ProgramManager

Managestheprogram

Aidsinsupplyingthebusinesscase

TheStandardforPortfolioManagement1.8,2.2

71

KeyStakeholderscontd

ProjectManager

Managestheproject

Providesperformanceindicators

Suppliesarecoveryplanifprojectintrouble

Program/ProjectManagementOffice

Dependsonorganization

Maybeonlycoordinationandsupport

Mayberesponsibleforprojects/programs

MayplayaroleintheadministrationofthePPMprocess





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Wrap-Up

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Review:PPMProcessGroups

Al igningMonitoring &

Controlling

1. Identification

2. Categorization

3. Evaluation

4. Selection

5. Prioritization


7. Authorization

8. Portfolio Review

Reporting

9. Strategic Change





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Research Indicates

AsurveyoforganizationsrePPMindicates:

PPMconsideredimportant

Greatestbenefitisaligningprojectstostrategy

Butstillnotgoodatkillingprojects,


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Research Indicates

Orallocatingresourcesoptimally

LowuseofPPMsoftware

LargecompaniespracticePPMatboththe

enterpriselevelandatthebusinessunitlevel

PPMmostpopularforITandnewproduct

development





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There Are PPM Maturity Models

OPM3

PMSolutions(seeattachedsheet)

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SoftwareTools:A2004Market

SummarybyMETAGroupInc.

METAspectrum

MarketSummary,

2004




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ExampleofPortfolioSoftware:

PacificEdge

79

ExampleofPortfolioSoftware:

Primavera




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CriticalSuccessFactors

Acceptedprocess usable,repeatable,consistent,

corporate-wide,etc.

Clearlyunderstooddecisioncriteria

Flexibleenoughtoallowdifferencesinsize,category,etc

Reminder:whataresomecategorytypes

Seniormanagementcommitted

Measureresults

Lessonslearned

Recognizethatsomeprojectsshouldbeterminated

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TheStandardforPortfolioManagement:

NextRevision

Oct Dec2006:Nowsurveyingpractitionersto

identifygapsinthecurrentstandard.

Nov-Dec2006: Callforvolunteersfortherevision

team.

2007: Draftarevisedstandard

Early2008:2nd

ed.Tobeavailableasanexposuredraft

ContactLarryGoldsmith,[email protected]




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LetsRe-doTheQuiz!

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Quiz

DoesPPMdealmainlywiththe

(a)past

(b)present,or

(c)future?




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Quiz

Whichofthefollowingcanbeacomponentofa

portfolio:

(a)aproject

(b)abusinesscase

(c)aportfolio

(d)aprogram

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Quiz

Oystershave

(a)highprob.ofsuccess,highpotentialreward

(b)lowprob.ofsuccess,highpotentialreward

(c)highprob.ofsuccess,lowpotentialreward

(d)lowprob.ofsuccess,lowpotentialreward




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Quiz

AportfolioisAcollectionofprojectsorprograms

andotherworkmanagedinacoordinatedwayto

obtainbenefitsandcontrolnotavailablefrom

managingthemindividually

TrueorFalse?

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Quiz

Inevaluatingpotentialprojects,researchindicates

thatweshouldemphasize:

(a)Modelsbasedonfinancialbenefitsseemmore

reliable

(b)Subjectivescoringmodelsseemmorereliable

(c)Cannotdecide (d)Whocares?




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Thank You

Procept Associates Ltd.

Keith Farndale, MBA PEng

PMP, President

tel 416-693-5559

www.procept.com

[email protected]

Appendix




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Portfolio Reporting Review

ANSWERSomeperformancemetrics

Componentschedulemilestones

Financialcontribution

Assetmaintenance&development

Enduserandstakeholdersatisfaction

Riskprofile





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BIBLIOGRAPHY

Cooper, Robert G, Scott J Edgett, and Elko Kleinschmidt. Portfolio Management for NewProducts, 2nded., Basic Books, 2001. www.prod-dev.com

Dye, Lowell, and James Pennypacker.Project Portfolio Management: Selecting andPrioritizing Projects for Competitive Advantage. Centre for Business Practices, 1999.www.cbponline.com

Kendall, Gerald I, and Steven Rollins.Advanced Project Portfolio Management and thePMO. International Institute for Learning and J Ross Publishing Inc, 2003.

Pennypacker, James S, editor.PM Solutions Project Portfolio Management MaturityModel. Centre for Business Practices, 2005. www.cbponline.com

Project Portfolio Management Maturity: A Benchmark of Current Business Practices.

Centre for Business Practices, 2005. www.cbponline.com

The Standard for Portfolio Management, Project Management Institute, 2006.

The Standard for Program Management, Project Management Institute, 2006.

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